Sun. Feb 5th, 2023


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Three days before commercial rent relief shock, Retail NZ believed its concerns had been ‘dismissed’

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A letter sent by Kris Faafoi less than a week ago suggests either the Government was keeping its plans to insert “fairness” clauses into property leases secret from the industry, or the process only began this week, writes Hamish Rutherford.

Retail New Zealand chief executive Greg Harford didn’t just think his pleas for rent relief were being ignored, he believed they had been rejected.

On Monday, Harford wrote to his members, many of New Zealand’s leading retail companies, explaining that almost a month after writing to Justice Minister Kris Faafoi seeking assistance on rent relief, he had received a reply.

Faafoi’s letter of September 24, obtained by the Herald, acknowledged the difficulties faced by the sector and reminded Harford of support the Government had already announced.

“I hope that businesses will take advantage of the available resources and that commercial landlords and tenants can continue to work together in these extraordinary circumstances.”

The letter did not even appear to acknowledge Harford’s request for Government intervention or mention that ministers might be contemplating legislative action.

Harford’s letter to his members suggested he was furious with Faafoi’s response.

“Mr Faafoi, The Minister of Justice has replied to me, effectively dismissing our sector’s concerns. I think this response is disappointing, and I will be going back to him seeking action rather than words,” Harford wrote on Monday.

Two days later, Retail NZ was as surprised as the Property Council when Faafoi announced that under emergency Covid response legislation, changes would be made to the Property Law Act “to insert a clause into commercial leases requiring a ‘fair proportion’ of rent to be paid where a tenant has been unable to fully conduct their business in their premises due to the Covid-19 restrictions”.

“It’s a surprising process and seems to be a little ad hoc,” Harford said this week.

He did not know why the possibility of legislative action to force relief through lockdown was not mentioned in Faafoi’s letter.

“From our point of view, there’s been a policy change over a period of three days,” Harford said of the period between Faafoi’s letter and the Justice Minister’s announcement.

“That would lead me to wonder if the decision was made very late in the piece, but I don’t know why.”

The Property Council has this week written to Prime Minister Jacinda Ardern pleading for the rules to be changed, fearing that because the change appeared to apply to all commercial leases, meaning in theory even companies which were not entitled to claim the wage subsidy may be entitled to rent relief.

Meanwhile Harford indicated that the fix offered by the Government did not solve the issue being faced by retailers because, as he understood it, relief would only be offered for disruption that occurred since Tuesday.

“The legislation appears to be forward looking, so effective from Tuesday this week, not taking into account the lockdown that we’ve just had,” Harford said.

Retailers outside Auckland would therefore not be entitled to any relief, Harford believed, while Auckland retailers would not be entitled to relief for the first month of lockdown.

Others have warned that the vague wording of the changes could lead to lengthy arguments between landlords and tenants over what the rules meant in each situation.

“We expect that debating what a ‘fair proportion’ amounts to will create some issues,” Motor Trade Association chief executive Craig Pomare said in a statement. The MTA welcomed Faafoi’s move but called for the cost of arbitration where agreement cannot be reached to be subsidised.

Faafoi has not responded to requests for interviews. His office has not responded to questions about his letter to Harford or the timing of the decision-making process.

Act leader David Seymour doubted the decision was not in train when Faafoi wrote to Harford.

The letter “shows an arrogance and aloofness that they go out of their way to withhold information about the government’s plans from the people who pay for government,” Seymour said.

“I struggle to believe that they implemented an extensive change, an unprecedented change, to contract law in New Zealand, with five days notice,” Seymour said.

“It’s possible Faafoi was out of the lop and someone else planned it without him, but I think it’s more likely that he was actively pursuing a policy of keeping the people of New Zealand in the dark about a major policy change.”

Quite aside from the complications the change could throw up, Seymour said the nature of the decision could undermine confidence in New Zealand as a place to operate.

“The fundamental difference between a banana republic and a civilised place is that when you have secure property rights and the rule of law, you can save something today and you know it’ll be there for you tomorrow, maybe more. If you think that some tin pot banana republic dictator might take all your rights away, then you might as well party today and forget tomorrow,” Seymour said.

“I don’t want to over egg it, but this act moves us slightly across the spectrum toward the latter.”

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